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You
can blame
the Boom ‘90’s
for the past three (3) years of diving
stock prices, but it has been accounting misdeeds and corporate
wrong doing that has caught the media’s attention and
has been the primary driver behind the current
Directors and Officers Liability crisis. Yes, the pre-2000 soft insurance market is also a factor,
but each reported scandal has exposed Insurers to hundreds of
millions of dollars in potential claims.
If
you are a large and
visible public corporation, you
have probably seen your D&O Insurance premium
double. Even smaller but financially
distressed companies, or companies
that find themselves in the headlines or organizations
in healthcare, telecommunications, or technology,
have
seen their D&O Insurance premiums increase substantially in 2002. One
hundred (100%) percent increases were not unusual.
For private companies not in those industry’s, the
news is not quite as bad, but rates are still up 30-35%.
Could it happen again in 2003? Oh yes!
It
used to be that ‘Excess’ layers were available at
discounted rates over primary (first dollar) policies.
That is not always the case anymore. Quite often,
Excess layers are the same cost as the primary.
Coverage
provisions are also changing. Many insurers want
insureds to accept coinsurance provisions rather than
just deductibles. Some Insurers are requesting
25-30% coinsurance sharing provisions so their insureds
interest in settling cases matches their own.
As
a result of the
media’s attention to high profile corporate misconduct
and accounting irregularities, a cry arose for “corporate
governance”.
Out of that, the Sarbanes-Oxley
Act came
about. The intent was
to reform corporate accounting practices. The jury is still out on the
impact on Corporate America. The truth be told,
‘most’ CEO’s and CFO’s felt responsible before
Sarbanes-Oxley.
Insurers
and
stockholders alike have come to an unfortunate conclusion.
They can no
longer simply accept audit reports. They now need to spend
extra time to thoroughly evaluate and verify
corporate finances. We
find Insurers are now asking for a lot more detailed
information and are taking longer to evaluate potential
insureds. It is putting everyone through a
lot more work and aggravation.
Bottom-line,
D&O Liability Insurance is at a crisis point.
There
still are willing insurers, but you will probably pay
more for less next renewal.
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